Why you should not invest in real estate with your own money

Some time ago, I compared businesses, stock markets and real estate as investments. We have seen that there is a big advantage to investing in real estate: the bank lends you money to do it.

We return to this point to discuss something that goes against the logic of most people (not investors), but it makes all the difference for the investor.

If the bank lends you money, your income grows exponentially.
What value would you get by investing € 10,000 in a business? It depends but, as we have seen, there is a 90% chance that within five years you will lose all the money.

And what value would you get by investing $ 10,000 in the stock market? Also here, it will vary over time, but you can purchase 10,000 shares
Instead, with real estate, things are different.

We start from a simple hypothesis: you put 10,000 Euro and 90,000 Euro from the bank to buy a property for 100,000 euros. So, with real estate, with 10,000 euros, you can buy a real estate property valued at 100.000 Euro!

Now, let’s say that after one year you resell this property for 130,000 euros. Give back to the bank the loan (say 100,000 euros, including interest) and you are left with 30,000 euros. You had put 10,000 so what have you earned? 300%, that’s what you’ve earned.

Ok, then you have to pay taxes, but this is a simplified example just to make you understand the effect of financial leverage.
Even if things go well in business or the stock market, it is highly unlikely that you can earn 300%! More likely it will be 3%, it is unlikely that is will go beyond 30%.

With real estate, your ROI (Return On Investment) is 1-2 orders of magnitude higher than what you get by investing in a business or the stock market.

Do you understand why 80% of millionaires invest in real estate?
Because property allows you to multiply the effect of money – even if you start with no money! Wealthy people are not ashamed to ask for loans because they know that the best strategy is to invest with other people’s money. And real estate is the tool that allows this strategy.

If you understand this point, believe me, you’ve already started your path to wealth.